F-35 costs had 'significant things missing'

Significant things were missing from the Canadian government's cost estimates for F-35 fighter jets, Auditor General Michael Ferguson told MPs on the public accounts committee today.
Significant items were missing from the Canadian government's cost estimates for F-35 fighter jets, Auditor General Michael Ferguson told MPs on the public accounts committee today. (Adrian Wyld/Canadian Press)

Significant items were missing from the Canadian government's cost estimates for F-35 fighter jets Auditor General Michael Ferguson told MPs on the public accounts committee today.

He also said the Department of National Defence has a long-term estimate for what it will cost to run the planes for their 36-year lifespan, but didn't use it when deciding whether to buy the planes.

Ferguson faced questions in Ottawa from MPs on both sides of the table over his hard-hitting report into the process to replace Canada's aging CF-18 jets with F-35 fighter jets.

Ferguson wrote in his April 3 report that the department didn't exercise due diligence in choosing the F-35 to replace the CF-18, wasn't forthcoming with Parliament about its true estimated cost and made key decisions without required approvals or proper documentation.

His report also showed the department had internal estimates that 65 F-35 jets would cost $25 billion over 20 years, but would only admit to a cost of $14.7 billion. Defence Minister Peter MacKay and Associate Defence Minister Julian Fantino avoided answering questions about the full cost, insisting the jets would be $9 billion, despite months of formal and informal requests.

"What we identified was there were some significant things missing from the life-cycle costs," Ferguson said, pointing to attrition, upgrades and "the fact that these aircraft were going to last for 36 years, not 20 years."

"I don’t believe that we were nitpicking in any way, I think we were saying that some significant things were missing."

Conservative MPs now say the government was using two different numbers, not including full operating costs in the numbers provided to Page despite government rules that say those costs must be included in estimates.

Rules require all costs be included in estimates

But both Treasury Board and Department of National Defence rules require all costs for the lifespan of a major purchase to be included in estimates.

Ferguson seemed cautious, speaking slowly and consulted frequently with the officials sitting on either side of him.

He dismissed questions about how imprecise early cost estimates can be.

"In something like this, there are always degrees of certainty and it's important to prepare the numbers based on the best information that is available," he said.

"Certainly over time these types of estimates can be more precise, but that doesn’t mean that the original cost estimates should not include all of the cost elements."

$25B cost uses government's own numbers

Conservative MP Laurie Hawn, former parliamentary secretary to the defence minister and a front-line defender of the F-35 project, asked Ferguson about the government promising to freeze the acquisition cost — the cost to buy the planes and train pilots — at $9 billion. Hawn said since the $25-billion total cost is an estimate, it would be misleading to tell Canadians it's a hard number.

"That [$9 billion] is the only number that’s actually known. Everything else is an estimate," Hawn said, pointing out it's difficult to estimate the cost of fuel for the planes throughout a 36-year lifespan.

The estimates have to be based on the best information known today, Ferguson replied, and to provide cost ranges and analysis about how much those estimates could change, as well as strategies to deal with extra costs if the estimates are wrong.

"The $25 billion that we used is the amount of two budget amounts that were approved," Ferguson said.

"So we used those on the basis that those two amounts were actually approved, rather than using our own estimate."

Ferguson said it was National Defence that estimated the full life-cycle of the F-35s to be 36 years.

"And therefore by definition, to apply lifecycle costing, we felt it should include the whole 36 years since that is the estimated lifecycle," he said.

Ferguson also said the department has an estimate for what it will cost to use the planes for the full 36-year lifespan.

"But numbers brought forward for decision-making purposes and used, for example, in response to the Parliamentary Budget Office numbers were based on 20 of those 36 years," he said.

Cabinet approved budget

NDP MP Malcolm Allen tried to tie Prime Minister Stephen Harper, Finance Minister Jim Flaherty and MacKay to the decision to buy the F-35s, but Ferguson wouldn't say which cabinet ministers would have known the full cost when they signed onto the plan to spend $25 billion on the planes.

"Those budget items, those budgets were approved. They went through normal process, but I certainly don’t have with me, or wouldn’t even I guess have access to information about who saw what when, other than to say it went through normal process. It was approved," Ferguson said.

The auditor general said even National Defence has admitted it would be hard to have a competition to replace the CF-18s because they have been so involved in developing the F-35.

When the government announced a secretariat to oversee the process to replace the CF-18s in the wake of Ferguson's report, their initial news release referred to it as the F-35 secretariat, tagging it with the name of a specific plane rather than a more generic name.

On Wednesday, Alexander said that had been changed.

"The Secretariat [that] you talk about is called the F-35 secretariat — no it's not, it's called the fighter jet procurement secretariat," he told Evan Solomon, host of CBC's Power & Politics.

MacKay's office referred questions on the secretariat to the office of Public Works and Government Services Minister Rona Ambrose. Ambrose's spokeswoman refused to say what the secretariat's name was or to confirm the change.

"We are establishing a new secretariat at the department and it will play a lead coordinating role as the government moves to replace Canada’s CF-18 fleet," Michelle Bakos said.

That's not the only change the government has apparently made. A reference in an annual report to Parliament that had indicated the F-35s had been approved was altered to put them in an "options analysis category," indicating the decision isn't final. 

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